Surabaya — A 2026 study by Bagas Ezar Aflah and Aprillia Nilasari from the State University of Surabaya reports that domestic investment significantly increases employment absorption in East Java, while poverty levels and open unemployment rates reduce the region’s ability to create jobs. Published in the East Asian Journal of Multidisciplinary Research, the research highlights how strengthening domestic investment policies can help expand employment opportunities during Indonesia’s post-pandemic economic recovery period.
Employment absorption remains a central indicator of regional economic performance in Indonesia. East Java, one of the country’s largest economic hubs, experienced steady growth in employment between 2020 and 2024, rising from about 20.9 million workers to 23.3 million. Despite this improvement, structural challenges such as persistent poverty, labor market imbalance, and uneven investment distribution continue to limit job creation across districts and cities.
Understanding how these structural factors interact is essential for policymakers seeking to strengthen inclusive economic growth. The research by Bagas Ezar Aflah and Aprillia Nilasari from the State University of Surabaya provides new empirical evidence on how poverty, unemployment, and domestic investment jointly shape labor absorption patterns in East Java during a critical recovery phase after the COVID-19 pandemic.
The researchers analyzed panel data from 38 regencies and cities across East Java between 2020 and 2024. The dataset combined official statistics from Indonesia’s Central Statistics Agency and domestic investment data from the Investment Coordinating Board. Using panel regression analysis, the study evaluated how changes in poverty levels, open unemployment rates, and domestic direct investment influenced employment absorption across the province over time.
The statistical model explained approximately 69.68 percent of variations in employment absorption, indicating that these three factors together play a major role in determining how effectively the regional labor market absorbs workers.
The results show three clear relationships between economic conditions and employment absorption in East Java:
First, increases in the number of poor residents significantly reduce employment absorption. A one-percent rise in poverty levels corresponds to a decline of about 0.13 percent in labor absorption. This pattern reflects how limited access to education, training, and economic resources weakens workforce competitiveness.
Second, higher open unemployment rates also reduce employment absorption capacity. A one-percent increase in unemployment correlates with a decrease of approximately 0.02 percent in job absorption. This finding indicates persistent mismatches between workforce supply and available job opportunities.
Third, domestic investment plays a positive role in strengthening employment absorption. A one-percent increase in domestic investment contributes to roughly a 0.01 percent increase in employment absorption. Although the impact remains modest, the effect confirms that investment expansion supports job creation across economic sectors.
According to Bagas Ezar Aflah from the State University of Surabaya, domestic investment stimulates production activity and encourages business expansion that opens new employment opportunities. He explained that directing investment toward labor-intensive sectors would produce stronger employment outcomes for regional communities.
The study also highlights how poverty continues to function as a structural barrier to employment growth in East Java. Limited educational access, insufficient vocational training, and low workforce productivity reduce opportunities for workers to enter higher-value economic sectors. As a result, many workers remain concentrated in informal employment with lower income stability.
Open unemployment reflects both cyclical economic pressures and structural labor market challenges. In major urban areas such as Surabaya and Malang, the number of educated job seekers continues to grow each year. However, available employment opportunities do not always match their qualifications, creating skill mismatches that slow workforce absorption despite ongoing economic recovery.
Domestic investment, by contrast, demonstrates measurable positive influence on employment expansion across industrial regions such as Gresik, Sidoarjo, and Pasuruan. Investment flows into manufacturing, trade, and services sectors increase production capacity and generate multiplier effects that support job creation in related industries.
Aprillia Nilasari from the State University of Surabaya emphasized that improving employment absorption requires coordinated policies addressing poverty reduction, unemployment control, and investment growth simultaneously. She noted that employment expansion cannot rely on a single economic variable but depends on integrated regional development strategies.
The findings provide practical guidance for policymakers seeking to strengthen regional labor markets. Expanding access to education and vocational training can improve workforce quality, while investment incentives for labor-intensive industries can accelerate job creation. At the same time, reducing poverty remains essential for increasing long-term labor productivity and competitiveness.
For businesses and regional planners, the study highlights the importance of aligning investment strategies with employment objectives. Encouraging domestic investors to support sectors with strong workforce demand could help ensure that economic growth translates into broader employment opportunities.
The research also contributes to academic discussions on labor market recovery in post-pandemic regional economies. By combining poverty indicators, unemployment data, and domestic investment trends, the study offers a comprehensive perspective on employment dynamics in one of Indonesia’s most economically significant provinces.
Bagas Ezar Aflah holds a degree in economics and is affiliated with the Department of Economics at the State University of Surabaya. Aprillia Nilasari holds a degree in economics and is affiliated with the Department of Economics at the State University of Surabaya.
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